Capital Improvements or Repairs

There is a big difference between capital improvements and repairs. According to Turbo Tax, “the cost of property improvements generally must be capitalized and depreciated over several years (by following IRS depreciation tables) rather than deducted in the year paid. By contrast, the cost of repairs can be written off in the year you pay them.”

Some example of capital improvements that materially add to the value of the property or substantially prolong its life include:

• Additions to the structure
• Adding a swimming pool
• Installing a water filtration system
• Modernizing a kitchen
• Installing insulation

Examples of repairs, that just keep the property in good operating condition, include:

• Painting
• Repairing appliances
• Fixing leaks
• Replacing broken windows or doors

For more information see IRS Topic 414: Rental Income and Expenses.